Why Do Borrowers Choose Arms Over FRMS? : A Behavioral Investigation in the U.S. and Japan by Masaki Mori In the U.S., a considerable number of borrowers still choose adjustable rate mortgages (ARMs) over fixed rate mortgages (FRMs), even with historically low interest rates. During 2004-2005, when interest rates remained at 30-year lows, ARMs accounted for approximately one-third of all mortgage originations. Kahneman and Tversky's Prospect Theory’s reflection hypothesis suggested that people tend to be more risk-averse in positive decision situations, while they tend to be more risk-seeking when making negative choices. The first purpose of this study is to examine descriptive reasons for the popularity of ARMs in the U.S. People of different cultures often evaluate uncertain events in different ways. Hofstede developed a cultural dimension, uncertainty avoidance (UA), where UA is defined as the extent to which people feel threatened by uncertain situations. The second purpose of this study is to test the role of UA on the choice of mortgage products using data from two cultures (U.S. and Japan), potentially differing in attitude toward uncertain situations. Controlled experiments were conducted using 92 U.S. participants and 49 Japanese participants. Results of analysis supported Prospect Theory’s reflection hypothesis, suggesting that risk-averse people tend to become more risk-seeking when choosing a mortgage type, leaning more toward ARMs when people frame the mortgage choice problem as part of a loss situation. The results of the intercultural comparison portion of the study supported the research hypothesis that UA works as a moderating variable for Prospect Theory’s reflection hypothesis, suggesting that risk-averse people with lower UA scores more dramatically change from a risk-averse preference for a fixed-rate bond to a more risk-seeking preference for an adjustable-rate mortgage, than risk-averse people with higher UA scores do. Overall, results of this study suggested that borrowers behave differently depending on their propensity for current consumption, the level of UA, and how they frame the mortgage choice decision. This study contributes to existing mortgage choice literature by incorporating psychological and cultural traits to examine borrowers’ attitudes towards interest rate risk with regard to residential mortgages. The findings are of great importance globally for governments and lenders in creating and introducing new mortgage products in countries with diverse cultures.

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This study sets out to explore attitudes and intentions towards nicotine product goods and how it is affected by the goal framing effect. The presence of this effect has been shown in the advertising of both green products and everyday products. The aim of this research is to explore whether or not this also holds true when it comes to unhealthy products, more precisely tobacco free all white nicotine products.    A quasi experimental study was conducted with the use of a fictitious brand of All-white tobacco. All 63 participants in the three different experimental groups of the study met the mandatory age requirement. One of the three groups received a positively framed advert, another received a negatively framed advert, whereas the last group acted as the control group and therefore received a neutral advertisement stimuli. All participants submitted their answers on a questionnaire created for this study, which was validated using Cronbach’s alpha and factor analysis.   The results suggest that the use of goal framing is beneficial when advertising nicotine product goods. Both positive and negative goal-framing showed a greater effect on purchase intention and product attitude than the control group. The negative goal-framing advert proved to be statistically different than the control group when measuring product attitude. Furthermore, the positively framed advert showed a statistically significant difference in effect on both product attitude and purchase intention compared to the control group.    The findings suggest that positively framed goal-framing has an effect on both attitudes and purchase intention, compared to the neutral stimuli. The negatively framed goal-framing had an effect on attitudes, compared to the neutral stimuli. The practical implication of this study could possibly be that when constructing advertisements for tobacco free snus products, it could be preferable to make use of the positive goal-framing effect in order to affect the consumers purchase intention and attitude towards the product.   This study has confirmed to some extent that the framing effect is a factor prevalent in the advertising of tobacco free products. For further research it would be highly interesting to delve deeper in comparing positive and negative goal-framing in order to find further evidence of which one has greater effect on consumers.